Dividend Growth vs Current Yield Calculator
Investment Details
How This Works
This calculator demonstrates how dividend growth strategies outperform static high-yield investments over time. With dividend growth, your income compounds and grows annually, while static yields remain the same. The calculator shows yield on cost, total income received, and how inflation impacts your purchasing power.
Key Insight
"A 3% yield with 10% annual growth will outpace a 5% static yield over 15 years, delivering nearly double the income."
What is Yield on Cost?
Yield on cost is your annual dividend divided by your original purchase price, not today's price. This metric shows how your income grows over time with dividend growth strategies.
When you’re building income from stocks, two paths keep coming up: dividend growth and current yield. One promises steady raises over time. The other gives you cash right now. Sounds simple, right? But choosing between them can make or break your retirement plan - especially if you don’t know what you’re really buying.
What Dividend Growth Actually Means
Dividend growth isn’t just about getting paid. It’s about getting paid more every year. Companies like Coca-Cola, Johnson & Johnson, and Procter & Gamble have raised their dividends for 60+ years straight. That’s not luck. It’s business discipline. These firms don’t just pay dividends - they grow them, often by 8% to 12% annually, even through recessions.The magic happens through compounding. Let’s say you buy a stock at $50 that pays $1.00 per share in dividends. That’s a 2% yield. If that dividend grows 10% each year, in seven years you’re getting $1.95 per share - nearly double your original payout. Your yield on cost? Almost 4%. Meanwhile, the stock price likely climbed too. You didn’t just collect income. You built wealth.
This strategy thrives on quality. Companies that grow dividends consistently usually have:
- Return on equity (ROE) above 15%
- Payout ratios under 60%
- Strong free cash flow
- Decades of consistent earnings
That’s why the S&P 500 Dividend Aristocrats - companies with 25+ years of rising dividends - have outperformed the broader market over the last 20 years. They’re not chasing yield. They’re building lasting value.
What High Current Yield Really Costs
High yield sounds irresistible. A stock paying 4%, 5%, even 6%? That’s more than most bonds. But high yield often comes with hidden risks.Companies offering sky-high dividends are sometimes in trouble. Utilities, pipelines, and real estate trusts (REITs) dominate this space. They pay big because they don’t have much room to grow. Their profits are stable, but their growth potential is low. And when times get tough, they cut dividends first.
During the 2020 pandemic, many high-yield ETFs like VYM (Vanguard High Dividend Yield) slashed payouts. Oil and gas companies, cruise lines, and retail REITs froze dividends to save cash. Investors who counted on that income got blindsided.
High yield often means high payout ratios - sometimes over 80% or even 100%. That’s not sustainable. If earnings dip, dividends follow. And when dividends fall, the stock price usually crashes too. You lose twice: income and capital.
The Math That Changes Everything
Here’s the real test: which strategy makes you more money over 15 years?Imagine two portfolios:
- Strategy A: 5% yield, no growth
- Strategy B: 3% yield, 10% annual dividend growth
After 15 years, Strategy A still pays 5%. Strategy B? It’s paying 12.4%. That’s not a small difference. It’s more than double your income. And if the stock price rose along with earnings, your total return could be 30-50% higher.
This isn’t theory. S&P Global modeled this exact scenario. Their research showed that a 3% grower beats a 5% static payer in every single 10- to 20-year window. Why? Because growth compounds. Yield doesn’t.
Dividend growth investors don’t just wait for checks. They wait for their checks to get bigger. And that’s how you outpace inflation - not by chasing the highest number on the screen, but by owning businesses that keep improving.
Real Investors, Real Choices
Reddit threads and retirement forums show a clear split. Retirees who need cash this month often pick high yield. One user wrote: “I need 4.5% from VYM now to buy groceries. I can’t wait 10 years for a raise.”But younger investors? They’re choosing SCHD (Schwab US Dividend Equity ETF). It has a 2.8% yield - lower than VYM’s 3.2%. But SCHD’s dividends have grown 10% a year on average over the last decade. In seven years, your yield on cost hits 5.5%. By year 15? You’re pulling in nearly 8% on your original investment.
And here’s the twist: even retirees are shifting. Mezzi’s analysis of real retiree portfolios found that 62% of those with sustainable income streams used dividend growth ETFs - not high-yield ones. Why? Because inflation eats away at fixed income. A 4% dividend today is worth 20% less in 10 years if it never rises.
ETFs That Define the Two Paths
You don’t have to pick individual stocks. ETFs make it easy:| ETF | Type | Current Yield | 5-Year Dividend Growth | AUM | Top Holdings |
|---|---|---|---|---|---|
| SCHD | Dividend Growth | 3.3% | 10.2% | $48.2B | Apple, Microsoft, Cisco, AbbVie |
| VYM | High Yield | 3.2% | 1.8% | $73.5B | Exxon, Chevron, Verizon, AT&T |
| NOBL | Dividend Aristocrats | 2.7% | 9.5% | $12.7B | 3M, Coca-Cola, Johnson & Johnson, Procter & Gamble |
SCHD and NOBL are pure dividend growth. They avoid companies that pay too much. They favor businesses with room to grow. VYM? It’s a yield grabber. It includes firms with high payouts but weaker balance sheets. The trade-off? Higher income today, riskier income tomorrow.
Which One Fits Your Life?
Ask yourself these questions:- Do you need income this year? If yes, high yield might help - but only if you’re ready to monitor for cuts.
- Are you investing for retirement 15+ years out? Dividend growth is the only real choice. It protects your buying power.
- Do you trust companies to keep raising dividends? Growth investors bet on business quality. Yield investors bet on current cash flow.
- Can you handle volatility? High-yield stocks often drop harder in downturns because they’re overvalued for their yield.
There’s no universal winner. But there is a smarter path. If you’re under 50, go for growth. If you’re retired and need cash, high yield might work - but only if you diversify across sectors and avoid companies with payout ratios over 70%.
What Experts Say - And Why It Matters
Christine Benz from Morningstar puts it bluntly: “Companies that focus on growing dividends tend to be higher-quality, cash-rich businesses that hold up well in down markets.”ProShares warns: “High yields often mean companies are paying out too much, leaving little to reinvest.” That’s why many high-yield stocks stagnate. Their stock prices don’t grow. Their earnings don’t grow. Their dividends barely grow.
Meanwhile, institutions are moving heavily toward dividend growth. Pension funds now allocate 78% of their dividend portfolios to growth strategies - up from 52% in 2018. Why? Because they’re thinking long-term. They’re not trying to get rich quick. They’re trying to stay rich.
The Bigger Picture: Dividends Aren’t the Only Way
Some experts, like CIBC Investor’s Edge, remind us that buybacks can be just as good - sometimes better. When Apple buys back shares, it reduces supply. That pushes the stock price up. Your ownership stake grows. No taxes. No waiting for a dividend check.But here’s the catch: buybacks are unpredictable. Companies can stop them anytime. Dividends? They’re more reliable. If a company cuts a dividend, investors notice. If it stops buybacks? Not so much.
Dividend growth is a signal. It says: “We’re profitable. We’re confident. We’re building for the future.” That’s why it works.
Final Thought: Time Is Your Greatest Ally
Dividend growth doesn’t pay off overnight. It takes 7 to 10 years for yield on cost to really shine. Most people give up too soon. They see a 2.5% yield and walk away - not realizing that in 10 years, that same stock might be paying 6% or 7% on their original investment.Current yield is a snapshot. Dividend growth is a movie. One shows you what’s happening now. The other shows you where you’re going.
If you’re building wealth, not just income, choose growth. If you’re living off your portfolio, combine both - but never sacrifice quality for yield.
Is a higher dividend yield always better?
No. A high yield often signals trouble - like a company paying out more than it earns. Stocks with yields over 5% are frequently in struggling industries like energy or telecom. They may cut dividends during downturns, causing both income loss and stock price drops. A 3% yield from a company with strong earnings growth is safer and more profitable long-term.
Can dividend growth stocks lose value?
Yes, but less often than high-yield stocks. Dividend growth companies are typically profitable, well-managed, and have strong balance sheets. They still fall in bear markets, but they recover faster. Since 2000, S&P 500 Dividend Aristocrats lost 25% less on average during major market crashes than the broader index.
What’s yield on cost, and why does it matter?
Yield on cost is your annual dividend divided by your original purchase price - not today’s price. For example, if you bought a stock for $50 that now pays $3 in dividends, your yield on cost is 6%. Even if the current yield is only 3%, your personal return is double. This metric shows the real power of dividend growth over time.
Should I choose SCHD or VYM?
Choose SCHD if you’re investing for the long term and want growing income. Choose VYM only if you need immediate cash and understand the risk of dividend cuts. SCHD has grown its dividend 10% annually for a decade. VYM’s dividend growth is barely above inflation. Over 15 years, SCHD will likely deliver far more total income and capital appreciation.
Are dividend growth stocks safe during inflation?
Yes - better than most. Companies that raise dividends consistently usually have pricing power. They can raise prices to match inflation, which protects their profits and lets them keep growing payouts. High-yield stocks in fixed-income sectors (like REITs or utilities) often struggle with inflation because their revenues don’t rise as easily.
How long should I hold dividend growth stocks?
At least 7 to 10 years. That’s when yield on cost starts to significantly outpace the original yield. The real magic happens after 15 years - when your dividend income can be 2x to 3x what you originally received. Holding shorter than that defeats the purpose of the strategy.
If you’re just starting out, begin with SCHD or NOBL. Reinvest every dividend. Let time and compounding do the work. Don’t chase yield. Chase growth - because in investing, the best returns don’t come from what you get today. They come from what you’ll get tomorrow - and the day after that.
RAHUL KUSHWAHA
November 3, 2025 AT 21:50Man, I’ve been chasing yield for years… thought 5%+ was the holy grail. Turned out my portfolio was just a time bomb. Started shifting to SCHD last year and wow - my yield on cost already hit 5.2% after 3 years. No cuts, no panic. Just quiet growth. 🙌